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tv   Senate Banking Hearing on Financial Regulations Consumer Protection  CSPAN  October 5, 2018 9:36am-11:42am EDT

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for campaign 2018. financial regulators testified before the senatebacking committee on implementing the economic growth consumer protection act. the legislation was signed into law by president trump in may of 2018. this is about two hours. >> today we'll hear from an agency responsible for the supervision and regulation of
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banks or credit unions. each will provide an overview of its efforts, activities, objectives, and plans to implement s 2155 the economic growth regulatory relief and consumer protection act. providing testimony will be federal reserve vice chairman for supervision, federal deposit insurance corporation chair, national credit union administration chairman, and comptroller currency. each of these agencies plays an integral role in preventing key provisions of the law. as policy makers, it's our job to enact laws and regulations that ensure proper behavior and safety for our markets but tailored propo tailored appropriately. shortly after dodd/frank was signed into law, we began to see the burden it had on certain financial institutions.
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for years, i and many other members of the committee on both sides of the aisle worked to find a solution to provide meaningful relief to small financial institutions and we succeeded in crafting s 2155. we're now approaching five months since it was signed into law by the president. having passed both the house and senate with significant bipartisan support. the law's primary purpose to make targeted changes to simplify and improve the regulatory reshumgime. it right sizes regulations for financial institutions make it easier for consumers to get mortgages and obtain credit while also increasing important consumer protections for veterans, senior citizens, victims of fraud, and those who fall on hard financial times. for example, just over a week ago, the federal trade commission and bureau of
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consumer financial protection announced as effective a provision of s 2155 that provides consumers concerned about identity theft or data breaches the option to freeze and unfreeze their credit for free. a "new york times" article commenting on this provision that one helpful change will allow consumers to freeze their credit foils after three major credit reporting bureaux without charge. consumers can also thaw their files temporarily or permanently without a fee. susan grant, director of consumer protection and privacy at the consumer federation of america expressed support these measures calling them a good thing. all though agencies have started to consider this law and some of their statements of rule makings, there's a lot of work to do on the bill's implementation. it is imperative that the agencies carry out all their responsibilities under this law
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expeditious. so that consumers, homeowners, veterans, and small businesses can begin to fully experience its benefits. in addition to timing, members of this committee are also deeply envested in the substance of agency's specific actions to implement this law and other written actions and efforts by the regulators to provide regulatory relief. in particular, agencies should significantly tailor regulations for banks was between $100 billion and $250 billion in total consolidated assets. with a particular emphasis on tailoring the stress testing regime. it should be noted that the primary reason we gave the regulators time to implement this provision was to develop a stream line stress testing regime. i encourage you to move quickly
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here. reassess the advanced approaches threshold, provide meaningful relief from the rule for all institutions, as i said in the letter to the regulators yesterday. and examine whether the regulations that apply to the stand alone u.s. operations of foreign banks should also be tailored at the same time and in a similar manner as u.s. banks. s 2155 raised the threshold for the application of enhanced credential standards under section 165 of the dodd/frank act. from $50 billion and in some cases $10 billion to $250 billion. it requires bank holding companies with more than $50 billion to commit capital plans to the fed on an annual basis.
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the asset threshold of $50 billion is consistent with the threshold established by section 165 of the dodd/frank act related to enhanced standards for certain bank holding companies. the occ recently raised the threshold for recovery plans from $50 billion to $250 billion. by i encourage the regulators to visit all regulations and guidance thresholds that were consistent with the outdated section 165 threshold to an amount that reflects actual systemic risk. regulators have two options. use a systemic risk factor based approach or ratds all thresholds to at least $250 billion in total assets to be consistent with s 2155. many of this law's provisions require agency rule makings.
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in order to avoid unnecessary delays in implementation, agencies should promptly issue notice of proposed rule making for all relevant aspects of the law. as s 2155 is implemented, i suspect some of it may be implemented through guidance or other policy statements that do not go through formal notice and comment rule making. i encourage the regulators to use notice and comment rule making generally, i recognize that sometimes policy must be communicated through more informal means. the congressional review act, however, requires agencies to submit with certain minor exceptions all rules to congress for review. by definition a rule is a whole or part of an agency statement of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy or describing the organization, procedure, or
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practice requirements of an agency. this is a very broad definition. in order to ensure that congress can engage in its proper oversight role as well as ensure that future congresss do not overturn the agency's policies statements related to implementation of s 2155, i encourage the regulators to follow the congressional review act and submit all rules to congress. even if they have not gone through formal notice and comment rule making. our economy is finally getting back on track. and the full implementation will continue to drive growth and improve economic health to the benefit of families across america. i look forward to hearing from each of you how your agencies begun and will continue to implement the regulatory relief and consumer protection act. thank you, senator browne. >> thank you, mr. chairman.
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this hearing was originally scheduled for september 13th, the same week ten years ago that lee man brothers declared bankruptcy. we know what happened next. the bush administration put together an alphabet soup of programs to keep the financial sector afloat. it was not enough. describe those early days of the collapse with this headline 36 hours of alarm and action as crisis spiralled. a decade after the most severe financial crisis since the great depression today we're discussing how it will roll back rules, put in place after that crisis. imagine that. these are the same agencies and your agencies that ignore the build up to the '08 collapse and
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in the case of the occ went to court for those who are fighting to try to do something. in some cases they're lead by the people people that failed to prevent or profited from the crisis. many of us agreed and should improve. in reality, this bill is littered with concessions to the big banks. it offers virtually nothing to american consumers. based on the questions of letters sent to officials by my republican colleagues since passage of 2155, it seems they're most concerned about how the law will help the largest domestic and foreign banks or to use a new republican -- regional banks with an international
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parent. the five largest banks recently announced more than $72 billion in stock buy backs, a 30% increase from last year. how many workers got a 30% raise last year? how much is enough for the nations very, very profitable banks. the banks have recovered so many americans haven't. 10 million lost their job during the crisis. don't try to argue that
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household wealth has recovered since the crisis. because aggregate measures are misleading. recent data from the federal reserve board of governors shows that the top 10% of households have seen big gains in household wealth. the bottom 90% have experienced no gains. so this committee and you as regulators seem to be most interested in how those 10% can be even more profitable. 88 million children affected by the foreclosure crisis. by 20126% of children in ohio, one out of 16 children in ohio affected. it's even higher in states like nevada and rhode island and maryland on this committee. we all know the lasting impact of childhood displacement. all though this -- our
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government doesn't seem to care a lot about that. and there are a lot of examples of that. some studies suggest the correlation between the great recession and the opioid crisis. in august, the federal reserve bank of san francisco released research that said the financial crisis, quote, cost the average american $70,000 in lifetime income. the federal reserve in dallas estimated the loss was even higher. numerous other studies estimate the impact of the crisis on the overall economy at $10 trillion. here we are today, here we are today talking about in the banking committee and in front of the most important financial regulators in the world how washington can do more to help the nation's banks. how washington can do more to help the nation's banks. we should be talking about how to increase wages, how to make housing more affordable, how to protect consumers, any academics and fed researchers suggest capital in banks is still too
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low. so the taxpayers and families because it's too low, taxpayers and families could be forced to bail out banks again when the next crisis hits. i don't think we heard any of these issues. the collective amnesia in this administration administration and this congress and this committee is astounding. i ask the panel to start thinking more about middle-class families and less about wall street profits. >> thank you. >> thank you. and we will now proceed to the testimony of the witnesses as you are well aware we ask you to keep your remarks to five minutes. your full statements will be made a part of the record. and i remind all of my colleagues to keep your questioning to five minutes as well. with that, we will go in the order that you are seated so we will start with comptroller of the currency joseph otting and then randy quarles, then federal deposit insurance corporation chair jelena mcwilliams and finally national credit union
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administration chairman mark mcwaters. please begin. >> i do appreciate choosing the order based upon beauty versus tenure and experience. chairman crapo, ranking member brown and members of the committee thank you for the chance to discuss the growth act, regulatory relief and consumer protection. i am honored to be here with my regulatory colleagues to update you on our progress. over the last ten months that i have served as comptroller, a strong working relationship has developed among regulatory agencies based upon open and frequent dialog and valuing each other's opinions and viewpoint. i want to begin by congratulating the chairman and committee on passing bipartisan, common sense reforms that ease the unnecessary regulatory burden on small and mid-sized banks across the country. by lifting that burden we helped small banks survive to be vital parts of their communities,
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serve their customers and promote economic growth. the reforms included are an important step towards rationalizing our regulatory framework, ensure our financial system continues to operate in a safe and sound manner, provides fair access to financial services and treats customers fairly. the office of the comptroller recognizes the importance of this effort and is committed to implementing the law as quickly as possible. the act authorizes the occ to jointly issue ten others with soundness regulators. we will consult with the bureau consumer financial protection on a variety of consumer protection requirements included in the act. the one regulation that passed individually to the occ affords federal savings associations greater flexibility without the burden and cost of changing charters. the occ advocated for greater
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flexible for federal saving association since becoming their primary regulator on july 2011. i command senators mir rand and heitkamp for taking the lead. allow federal associations with $20 billion or less in assets december 31st, 2017, to elect to operate with national banking power. federal savings associations that make this election would have the rights and privileges as a national bank and be subject to the same duties, restrictions, penalties, liabilities and limitations. comments on the proposed rule are due in november following a review of the comments i expect the issue of final rule in january of 2019. in august, the occ joined the federal reserve and fdic to issue two interim rules, on august 22nd, the agency issued an interim rule amending the agency's liquidity rules to treat certain securities as high
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quality liquid assets. the next day the agency's issued final rules to expand the number of community banks available for an examination cycle to affect changes sponsored by senator heller and donnelly. the rule allows qualifying entities to benefit from an extended examination cycle, greatly reducing the regulatory burden. recently on september 18th the agency's published a notice of proposed rule making to revise the definition of high volatility commercial real estate subject to the heightened capital requirements as supported by senators cotton and jones. work on the remaining interagency regulatory is well under way and we will issue notice of proposed rule making to simplify capital requirements applicable to eligible community banks and reduce all call requirements later this fall. while we work expeditiously to complete the regulations the occ joined the federal reserve and the fdic in july to issue a
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statement clarifying that agency's intent to supervise institutions consistent with the intent of the law. in doing so the agencies will, among other things, not enforce requirements on banks that the economic growth act intends to eliminate including with respect to the mammoths to the stress test requirements it toes by the dodd/frank and exempt institutions with less than $10 billion from the volcker rule. i appreciate the opportunity to update the committee on the economic growth and progress the occ has made in other areas to reduce unnecessary burden and promote economic opportunity and job growth. that additional work includes encouraging banks to re-enter the small dollar lending market, issuing an advanced notice of public rule making to begin public dialog regarding monetizing the community investment act regulations and moving forward on accepting special purpose national charters engaged in the business of banking and making compliance with the banks security act and
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anti-money laundering regulations more efficient. my written it testimony provides details on these efforts. i believe that consumers and communities alike will benefit from the reforms included in the economic act and the agency's other work for many years to come. the occ will keep the committee apprised of our work and i look forward to answering your questions. thank you very much. >> thank you. mr. quarles. >> thank you. chairman crapo, ranking member brown, members of the committee, i appreciate this opportunity to testify on the federal reserve's implementation of the economic growth regulatory relief and consumer protection act. the act calls on the federal banking agencies to aid in promoting economic growth by further tailoring regulation to better reflect the character of the different banking firms that we supervise and recognizes banks have a variety of risk profiles and business models. i believe that our regulation and supervisory programs can be flexible enough to accommodate
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this variety. the federal reserve's implementation of the directive is under way. in my testimony today, i'll describe the progress we've made to date on tavgsz set for the federal reserve in the act and also highlight the work that will be our top priorities in the next few months. turning first to the progress that we've made to date, among the act's key provisions are targeted tailoring measures to reduce the regulatory burden on community banks, to provide clarity to the public, the board and the federal banking agencies in july issued public statements on the regular regulations and reporting requirements that the act immediately effected, indicating that we would give immediate effect to those provisions before the formal regulatory changes were fully implemented and in august the board began implementing these and other aspects with final rules. one interim final rule raised the asset threshold from $1 billion to $3 billion for bank holding companies, to qualify for what's known as the small
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bhc policy statement. the rule renders most bhcs and savings and loan holdings companies with less than $3 billion in assets exempt from the capital rules and provides corresponding relief from comprehensive consolidated financial regulatory reports. another interim final rule expanded the eligibility for small firms to undergo 18 month examination cycles rather than an annual cycle from less than a billion to $3 billion in total assets. in addition, the task of developing a community bank leverage ratio is a high priority for the board and our fellow regulators and our goal to issue a proposal in the near future. turning to larger firms, the board has placed our highest priority on issuing a proposed rule on tailoring enhanced credential standards for banking firms with assets between $100 billion and $250 billion. our task is not merely to reform the current regulation of the particular institutions that are affected by the act at this
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moment, but to develop a framework that will describe in a principled way when future institutions may expect enhanced regulations and why using objective measures that account for the relative complexity and interconnectedness among large banks. while the statute sets an 18 month deadline for this regulatory process which expect to move more quickly than this. topics covered could include, among other things, capital and liquidity rules, resolution planning requirements, for the less complex and interconnected of these firms. the statute requires periodic supervisory stress testing by the federal reserve which i believe recognizes the value of stress testing but requires a more tailored frequency and more carefully about the burdens of these tests. beyond thinking about how we will further tailor our regulation and supervisory programs with firms of assets between 150 and $200 billion the board is reviewing our requirements with more than $250
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billion in total assets but below the threshold. through this review the board aims to ensure that our regulations continue to appropriately increase stringency with the risk free files of firms, consistent with the act and the board's focus on tailoring. currently, some aspects of our regulatory regime, liquidity regulation, for example, treat banks with more than $250 billion in assets with the same stringency as gsibs. i see reason to apply a clear differentiation. let me conclude by saying that provisions i've highlighted in my delivered remarks focus on tasks that the board has completed or made a priority for the near term. in my written testimony and its appendix find a more fulsome list with important tavgsz and the board's thinking and action, implementing the act is a further milestone. thank you again for the opportunity to testify before you this morning and i'm looking forward to answering your questions. >> thank you m quarles.
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miss mcwilliams. >> thank you, chairman. chairman crapo, ranking member brown and members of the committee, thank you for the opportunity to testify today on the fdic's efforts to implement the economic growth regulatory relief an consumer protection act. i want to congratulate chairman crapo and other members of the committee who worked hard to craft this bipartisan legislation and former chairman shelby for his prior work in this area. when i testified during my confirmation hearing i stated one of my top priorities at the fdic would be the health of the nation's community banks and their ability to effectively serve their communities. community banks play a vital role in their local economies and our regulatory regime must do what it can to ensure their continued vitality. the committee's efforts on s-2155 have provided a strong foundation for delivering on this priority with a number of the directives to reduce regulatory burden on nation's small banks.
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i particularly appreciate the committee's efforts to give regulators to tailor regulations to the size and risk profile of an institution. as my written statement details, the agencies have taken steps to conform existing regulations to the new law including on items such as extending the examination cycle for small banks and amending the capital treatment of commercial real estate loans and we're working on the community bank leverage ratio. taken together, these provisions and others will help community banks focus on serving their customers and communities and i can assure that the fdic takes the law's requirements very seriously. since i became chairman, the fdic has commenced work on a number of complimentary initiatives to eliminate requirements that are dupe clative, unnecessary burdensome or fail to contribute to the safety and soundness of the
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financial system. one of my initial priorities is to make sure supervisory guidance is clear and concise. as a result, we're looking to rescind more than one half of our financial institutional letters over 400 letters will be retired. yesterday, we issued a request for comment on how the fdic communicates with regulated institutions with streamlining communication and further reducing compliance burden. in the coming weeks and months we will also address a number of additional regulatory priorities including issues such as small dollar lending, consistency of ratings and resolution planning. beyond addressing regulatory burdens on existing banks we're considering how we can more effectively encourage new entity is to enter the market ensure they are strong enough to survive, this includes improving the application process and providing additional technical assistance to applicants. since 2010, only 11 new deposit
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insurance applications for start-up fdic insured banks have been approved and opened and most of those within the last 15 months. to ensure the long-term vibrancy of the banking industry we must attract new financial institutions and their capital. the fdic's review process must support the crucial goal, particularly for those communities that do not have access to a bank or a served by a still institution. we're also reviewing the application process for industrial loan companies. congress authorized the fdic to act on applications for deposit insurance and the fdic stands ready to fulfill its mandates to review application and approve them when they meet statutory requirements. the fdic has begun a wholistic review of broker deposit and national rate camps. we recently issued a proposal rule to implement section 202 of s-2155 which provides certain reciprocal deposits are not considered broker deposits.
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additionally we will seek comments later this year on the fdic's broker deposit regulations more generally. the banking industry has undergone significant changes since regulations were put in place and we will consider the impact of changes in technology, business models and products since the broker deposit requirements were adopted. lastly, i have embarked on a chairman's listening tour to visit with bankers in each state during my five-year term together their input and meet with customers including small businesses, farmers and consumers. my goal is to reverse the long-standing trend of having those affected by our regulation comes to washington to be heard. it is long overdue that we come to them instead. by increasing transparency and engage morgue effectively and directly with our entities and consumers and eliminating unnecessary burdens, the fdic will be better positioned to support the health of the nation's banks to ensure economic growth and job creation. i look forward to working collaboratively with the committee on these efforts and
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thank you again for the opportunity to appear before you today. >> thank you, miss mcwilliams. mr. mcwaters. >> good morning, chairman crapo, ranking member brown and member es of the committee, thank you for the opportunity to participate in this important hearing on the implementation of s-2155. s-2155 includes a number of amendments applicable to credit unions that provide regulatory relief, pro moment economic growth and protect consumers. specifically, section 103 exempted from a requirement certain rural real estate transactions, at its september 2018 meeting, the board proposed an appraisals rule incorporating this exemption and making additional burden reducing changes. section 105 amended the statutory definition of a member business loan to exempt all loans fully secured by one to
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four family dwelling regardless of the occupancy status. they wrorpincorporated this amet less than one week after 2155's enactment. section 212 requires them to annually publish the agency's draft budget and hold the public hearing. the ncua has been compliant with the spirit of section 212, since the fall of 2016, when we restarted public budget hearings and posted significant budgetary analysis on the agency's website. i wish to thank my democratic colleague rick metzker for working with me in a collegial, collaborative and bipartisan manner for two and a half years to reorganize the agency and develop sensible and targeted relief for the main street credit union system including one. establishing a regulatory task
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force to devolve a comprehensive review of the agency's regulations. two, providing flexibility to corporate credit union's capital standards. three, recognizing that federal credit unions may secure loans they make. four, the examination of the appeals process to ensure due process and fairness. five, improving the efficiency of the ncoa's capital planning and stress testing rules. six, adding flexibility to the ncoa's membership process. search, proposing additional options for federal credit unions to offer payday alternative loans that present a viable alternative to additional payday lenders and eight, proposing a more tailored risk based capital rule that does not needlessly burden the smallest credit unions. additionally, the ncoa
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promulgated an advanced notice of proposed rule making on the issuance for risk based network purposes. the ncoa also undertook initiatives to improve the agency's efficiency and reduce unnecessary examination and reporting burdens. specifically, the agency has, one, reorganized by eliminating two of our five regional offices and streamlining several agency functions to reduce costs and increase efficiency, two, extended our examination cycle to 18 months, reducing the agency's presence in well-run credit unions. three, undertaken a modernization of the agency's call report. four, implemented a program to incorporate emerging and secure technology that supports the agency's examination data collection and reporting efforts. finally i would like to offer two suggestions for legislative
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action that would benefit the credit union system and the underserved and assist the ncoa in carrying out its safety and soundness mission. first, permit all credit unions not just multiple common bond institutions, to add underserved areas to their field and membership so as to expand access to financial services for the unserved and the underserved in those of modest means. second, provide the ncoa with examination and enforcement authority over certain third-party vendors including credit union service organizations and information security and related vendors. we stand ready to work with you on your legislative priorities. i look forward to your questions. thank you. >> thank you m mcwaters. i thank each of you for the
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attention you're giving to implementing s-2155 and encourage you to do so. the benefit we are seeing from this regulatory reform is evident in our economy and i think the people who pay these costs, whether it be business owners, retail -- i mean consumers, or workers, will continue to benefit from your enhanced efforts. miss mcwilliams, my first question today will be on the community bank -- excuse me -- on yes, on the community bank leverage ratio. section 201 of s-2155 simplifies the capital regime for community banks by presuming community banks not engaged in certain activities and meeting a minimum level of capital to be compliant with generally applicable capital requirements. the provision requires federal banking regulators in consultation with state and banking regulators to develop a leverage ratio and establish a minimum level of capital for banks to qualify for the option.
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when do you plan to release a notice of proposed rule making on the community bank leverage ratio and provide us an insight into how regulators may be approaching setting this minimum. >> sure. thank you, senator crapo. the answer is very soon. we're hoping to have the proposed rule out shortly. certainly before the year end, if not much sooner. we are approaching the capital regime for capital banks from a simple perspective, we have made things too complicated. they should not be subject to the bassle 3 requirements. those should apply to internationally active large banks. the system that we put in place now needs to be measured to the risk profile of small community banks and banks below $10 billion. >> thank you. my next question is for you, mr. quarles, it deals with tailoring the supervisory stress tests. you referenced this in your testimony but section 401 of s-2155 requires a periodic supervisory stress test for
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banks between $100 billion and $250 billion in total consolidated assets. consistent with right sizing and simplifying regulations for regional banks such stress tests should be streamlined and tailored accordingly. when do you expect to release a notice of proposed rule making on supervisory stress tests for banks between 150 and $250 billion in total assets and can you describe how such stress tests could be simplified from the approach applied to these institutions and what factors the feds may be considering forte lorring such stress tests? >> thank you. so with respect to the timing of our rule making with regard to stress tests and other provisions applicable to banks between 100 and $250 billion, that is our highest priority in the sort of necessary sequencing of tasks associated with the implementation. i expect as chairman mcwilliams said, that we will be completed
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with that task very soon, certainly before the end of the year, and i hope well before that. for the elements of the stress tests, i think that, as i indicated in my testimony, we have a clear instruction with the use of the term periodic replacing the term annual. that we certainly need to tailor the frequency of those tests. we need to consider some of the burden appropriate to stress testing even on that less frequent basis for banks in that category. we're -- we have not completed our analysis of exactly how we will look at the burden of the tests or the timing of the tests and i don't want to front run the formal board decision on those measures, but it is a high priority and we will have an npr out for consideration by the committee soon. >> thank you very much. and i appreciate the attention you're both giving to these important issues. the last question is for all of
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you and there won't be enough of my time left after i ask it for you to do so, to answer here, so i'm going to ask you to provide your answer in writing. you may get some additional written questions as you know, but i would like you to take this as your first written question. section 165 of dodd/frank established a $50 billion and in some cases $10 be billion threshold in total consolidated assets for the application of enhanced prudential standards. such thresholds were applied in rule makings and guidance documents consistent with dodd/frank's requirements. supervisory guidance on company run stress testing for banks with more than $10 billion in assets issued by regulators in 2012 is one example. the agencies have applied numerous standards using the $10 billion or $50 billion asset threshold to be consistent with section 165. for example, banks with $50 billion or more in total assets
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have historically been subject to c-car a stress test not required by statute. my question with regard to this set of issues is, are you row viewing all rules and guidance documents referencing such thresholds and can you provide your thinking on revising these rules and documents in light of 2155? with that, and my staff will be glad to give you further thought on that question is, but it has to literally making sure we accomplish the intent of s-2155 across the regulatory spectrum. with that, senator brown. >> thank you, mr. chairman. i start with i would like yes or no answers to the first question i ask, and we have a lot of issues to go through and i appreciate the conversations that we've had privately and individually. if one of your -- start with you mr. otting, if one of your employees made racist and sexist
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comments in his first instinct to stick by them would you leave that person in charge of fair lepding at your agency? -- lending at your agency? [ inaudible ]. >> that's sort of a yes or no. >> use your microphone if you would. mr. quarles. >> i would have to support comptroller otting's answer on that. i think it's a facts and circumstances -- >> i'm asking if the facts are your employee made racist and sexist comments, first instinct to stick by them, would you leave that person in charge fair lending at your agency? that's the fact that i'm asserting. >> racism has no place in the workplace. >> miss mcwilliams? >> if my employee made sexist or racist comments in a workplace that would be subject to disciplinary action.
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there's no room for that at the fdic. >> if a background analysis yielded exactly the facts as you stated them, no, i would not leave that person in charge of that area. >> thank you for candor. vice chair quarles, i predicted that 2155 would be used to justify weakening rules for banks over $250 billion and po foreign mega banks. five months later groups of house and senate republicans have written letters to you and chairman powell saying that the fed has a responsibility under the law to do more favors for them. that bank -- that letter also was the letter i cited that regional banks with international parents. do you agree with republican letters that the fed has more responsibility to do more favors for mega banks? >> favors for mega banks is not how i would at all characterize
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anything that we're doing at the federal reserve or that we're required to do under any law. >> banks, favors by definition of doing things that make them more profitable, that relax the rules on them for capital standards and the like? >> so, i do think that we have an obligation as responsible regulators to consider the efficiency of our regulatory scheme in addition to its effectiveness in promoting safety and soundness. we have a public interest and the eefficiency of the financial sector because it supports economic growth and job creation and that economic growth is the basis of the ability we'll have to solve a lot of other problems in the country. >> the efficiency when i hear conservative regulators who were in charge a decade ago when all this happened, i hear about efficiency but efficiencies always seem to mean more profits for the banks and less stability
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for the banking system. seems never enough for them. let me say something, ten years later the eight largest u.s. banks are asking the fed to lower their risk based capital surcharge. if there was any -- if there was any that republicans and democrats agreed on after the crash if there was anything, it was the largest banks needed more capital to make them safer. research indicates that bank capital is below the level needed to insulate taxpayers from risks, the independent community bankers association of america in an op-ed asked the fed not to lower the surcharge since big banks still benefit, they think and i think and most of the world thinks from a too big to fail subsidy. do you agree we shouldn't lower big bank capital standards? >> as i said before, chairman powell has also said, i think that capital levels the total loss ab sore bansy, capacity in our system, is roughly about right. >> so okay.
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if the fed looks at the surcharge as you have said to me on the phone you would and i can't quarrel with that, will that -- will you consider the option that big bank capital should actually increase? are you open to that possibility? as many have called for. >> i think we should go where the analysis would lead it to go. we have taken actions during my tenure that have had the effect of increasing capital for the system and for the large banks. we ran the toughest stress tests in history over the course of the last year and that had the effect of increasing capital on the system and for the largest banks. >> mr. chairman, if i could do what you did, ask the last question go a few seconds and write the answer. thank you. some of the sponsors of s-2155 and chairman powell have said in front of this committee and other times that you do not intend for the bill to benefit large foreign banks operating in the u.s. you vice chair quarles have
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given speeches saying the fed should take a look at the reducing the regulatory burden ot banks saying the fed should reconsider its calibration of foreign bank rules. as you run to head the financial stability board, a crucial position, obviously, leading of leading international bank regulators, do you think it's important for the u.s. to offer united perspective that we must maintain the post-crisis regulatory framework for all large banks and if you could answer briefly or give us the written answer. >> we'll have to take it in writing. >> senator rounds. >> thank you, mr. chairman. let me begin by thanking the chairman for holding this important hearing. i also appreciate the time that each of our witnesses have taken to discuss the implementation off you are legislation. i would like to acknowledge your public comments and congressional testimony on making our regulatory system more efficient and transparent. a number of my colleagues and i from the committee have also
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recently reached out to you regarding new capital rules that fed is considering including the surcharge. i wanted to say a brief word of thanks for that response and the fed's commitment to continuing its review and recalibration of post-crisis regulatory reforms. i'm just curious with regard to that and i want to follow up because i think this is one area in which we have -- we're concerned about competition and it's not so much about favor tism, it's about trying to level the playing field. and what our concern was, is that we have competition on an international basis right now. we didn't want to have happen is that because of our regulatory per view, that we be mandated, that we increase the cost of operating for those organizations currently identified as gsibs. could you comment in terms of the thought process that you intend to employ as you review the supplemental leverage ratio
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regarding this. i think the important part about this and what i wanted to give you an opportunity to do is to correct any misunderstanding this is designed to be favor tism to a certain select group of institutions. >> thank you, senator. so the surcharge is part of, you know, of a complex of regulations that apply to our largest firms and really needs to be considered as part of that overall complex. the capital framework, the liquidity rules, the special stress testing requirements that we have for those institutions, our proposal to change some of those frameworks including the stress testing framework including the buffer which we have discussed as well and so i
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think that to the extent that we consider that entire complex that surcharge will inevitably be part of considering whether we have appropriately calibrated this complex of rules to ensure that we have both protected the safety and soundness of those firms that we have protected the financial of the security sector in the united states and it is relevant that we try to ensure that we have a level playing field internationally, not as a way of trying to seek a benefit for our firms, but because when you have an international system that has an unlevel playing field over time, pathologies will develop as activity moves to different areas of the global system, not on the basis of or driven by incentives other than purely economic incentives, incentives by the cost of capital. so i think we have to consider all of that. it's a very complex question. as i indicated in my answer to
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senator brown i don't think we should prejudge the outcome of a consideration of that whole complex of rules will be, that will move things in one direction or another. but i think that that principle is quite important in general as we consider all of those rules. >> thank you, sir. chair mcwilliams you reference section 103 which provides appraisal relief for rural borrowers in your testimony. in particular, you mentioned the implementation of the section is ongoing. can you please discuss how the fdic intends to implement this section and what more can be done to provide appropriate relief when it's difficult for borrowers to find appraisals? we're not talking about just a couple days, we're talking about months sometimes. can you please share your thoughtses? >> sure. thank you, senator. i believe it's very difficult for rural communities to find appraisals for in some cases residential and commercial
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property in the farmland. we're looking for ways to go above and beyond s-2155 to ensure that the appraisal requirements as well as other burdss than we can deal with for rural communities can be addressed as soon as possible. we're looking at providing extended periods of time, looking at providing some more relaxed standards for the appraisals in rural areas and we will do what we can within our jurisdiction to address those issues. >> thank you. thank you, mr. chairman. i will yield back my last five seconds. >> i appreciate that, senator. senator reed. >> thank you very much. thank you, lady and gentlemen for your testimony today. i want to fe p focus on an issue that's been a concern to me for many years, military lending act. your colleagues over at the cfpb indicated they're going to downgrade their review process by not reviewing their institutions for compliance in
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military lending act which i find is upsetting, 40 major veterans organizations took an add out, they are upset, so i would like if i could your commitment beginning with mr. otting going down the line to fully and vigorously enforce the military lending act for military members. >> you have our commitment we are in full support. >> yes. absolutely, senator. >> thank you. >> yes, senator. >> thank you very much. >> yes, senator. there are two very large credit union navy and penn fed, safety and soundness issue to the ncoa, it's also an issue of helping our soldiers, sailor, airmen and marines and we will enforce it. >> thank you. and is there any specific that you could add as to how you're going to carry that out,
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messaging your member institutions or whatever? i will ask the same question of everyone else. >> we're on the job now doing that and if the copb the bureau makes a decision that their interpretation of law they do not have the authority to examine, supervise, we will be there. we are already there. >> thank you. ma'am. >> nothing changes for us. we will continue to do what we have done in the past and service member protection is high on our list of priorities. >> similarly that has always been a high priority for the federal reserve and where we have the enforcement authority to act we will do that. >> thank you. >> yeah. you asked about how that's communicated. we do bulletins and policies and procedure issuance part of our normal examination cycle. >> thank you very much. we've all talked about the ten years that has passed since the last great crisis.
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and unfortunately there's always, even though it seems to be clear sailing, maybe because i'm irish, always an iceberg out there some place, so starting with the ncoa, what do you think is the systemic danger right now that we're facing? >> well, senator, that's a great question and it's difficult to answer because if you go back during my 36 years of practicing law starting with the s and l crisis, lbo crisis, lesser developed country crisis, dotcom and then what happened two years ago, there's a common denominator, regulators missed every one and they were all caused by lending, overconcentration of those loans. so looking and trying to specifically identify today what that is is difficult. i take a more simplistic view. what causes a bubble to inflate, what causes a bubble to inflate is money going after a certain deal.
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the first deals are very good. people make money on the deals. more money flows in, the deals get dumber and dumber. they're not underwritten. there's an over concentration. the answer to your question is simply follow the money. >> thank you. >> i generally agree with the chairman's comments. i would add we need to be cognizant of potential exposures to companies having the financial institutions have to cyber breaches. a global breach can could bring a financial institution down for a number of days and i think there are also issues with -- in general technology and how the companies are handling the technological issues as we move forward. not necessarily that an issue would bring a company down, but it's going to be on the front line of the defense. >> and very quickly, mr. quarles. >> yeah. for me cyber risk is the issue that we should be focusing on that we have not, you know, we have -- we have taken a number
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of measures with respect to financial stability risks and those have been effective in my view and the risks that we really need to focus on is cyber. >> senator, we believe credit quality is a big determinant of the future and so in our semi animal risk statements -- annual risk statements, we introduced what our priorities would be. i would echo my colleagues in cyber security. we spend time looking at software updates, patches, hardware and the ability to recover from a cyber security issue but that's the one area we would have concerns that consumers would be influenced if a bank they were banking with were shut down for a number of days. >> and again, i think most -- mr. quarles pointed out, most of theses are a shock to the system. thinking about it, but it's a big surprise and the best life preserver, my nautical analogy
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continuing, is capital. you should think carefully as you think about reducing capital we might not know what's around the corner. thank you. >> thank you. senator reed. >> senator tillis. >> thank you. welcome all of you and thank you for the work that you're doing. mr. mcbe waterwaters you made a additional comment about what you think would be helpful, could you get specific about your recommendations? >> in my oral statement there are two recommendations. credit unions want to serve the unserved and the underserved. there is a provision in the federal credit union act that says that only multiple common bond credit unions can add under served areas. since credit unions want to serve underserved areas, want to serve the unserved, it would be great if the federal credit union act was amended to allow credit unions to could what they want to do.
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credit unions are not subject to the cra and one reason they're not subject to the cra is that they actually want to extend credit to those individuals and those businesses that the cra would require them to. they want to do it anyway. so it would be nice to amend the federal credit union act accordingly. there is a request for vendor authority. all the other regulators at this table have the authority to regulate, to examine and supervise vendors. credit unions, many of them are very small and they operate sort of on an economy of scales basis by pulling together and hiring outside third parties to assist them. particularly in the cyber security my colleagues just articulated, we really can go in and examine those. our hands are tied. it would be helpful for that to happen.
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>> you mentioned you're starting a listening tour and have you completed any of those yet? >> i've been to your state, senator. >> what did you hear? >> bankers generally have issues with some of the accounting changes through fasb. there are issues with some of the bsa and aml compliance which is complicated for community banks to do. in general, rural communities they're struggling as mr. rollins mentioned appraisals and some of the lending activity. the agricultural prices, farm land prices are of concern to some folks. in general their appreciate for the regulatory changes ongoing. >> i've got several questions i'm going to submit for the record an i look forward to your responses. in my remaining time, first off, i don't think that s-2155 was
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trying to do any favor to any bank. it was actually to do a favor to consumers, to do a favor to unserved and underserved areas, to the people who actually need banking options that they don't have today because we've seen the ecosystem and community banks, we've seen a lot of pressure on credit unions, we've simply got to get more access to more consumers. that was my reason for supporting 2155. also, when you have a bank that's spending almost $700 million a year related to stress testing there's something wrong. i mean, we have to be able to understand the risk, but there is something fundamentally wrong with the regulatory process when you're spending that amount of money for nothing more than compliance. it's going out of any efforts to support or maybe serve underserved areas, so mr. quarles, and for the rest of you in my remaining time, number one, we've not only got to get to the regulatory relief for the
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$250 billion threshold, i think we have to go beyond that. part of that is streamlining the regulatory process. for all of you at any given point in time you could be in the same bank taking a look at your piece of the regulatory responsibility, but what are you all doing to make sure that these examiners, the people that are going on board, are actually being as lean as they can possibly be and do, lean as they possibly can be to get their job done. i think there's a lot of inefficiency and a lot of uncertainty and cost associated with that and at the end of the day it's the consumer, the business, the small business that gets torn. it's not doing a favor to the banks. what are you doing to try to streamline certainty. i won't have enough time for you to answer the question but like to see how you amongst your organizations are working to show me real progress in leaner
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regulatory execution and i'll yield back my ten seconds an look for your response. i would like to know precisely what you're doing between the agencies to get better at what you do and thank you. >> senator menendez. >> thank you. chair mcwilliams during your confirmation hearing you committed to adhering to the requirements and intent of the community reinvestment act and you added, i can assure you on a personal level as somebody who was part of the low and moderate income community, that the mission of the cra resonates profoundly with me on a personal level as well. this commitment is one of the reasons that i voted in support of your nomination. the occ recently released a proposal without input from the fdic or fed contemplating sweeping changes to implementation of the cra. so i would like to ask you and vice chair quarles about that. first, do you both i gre that discrimination in lending exists? >> senator, we actually look for
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discrimination and we sent if we find it, we sent those referrals to doj. yes. occasionally we come across incidents of discrimination in banking and those cases get promptly referred to doj for prosecution. >> similarly. we have the same program of looking for fair lending violations and referring them to the doj. we continue to find them. it does exist. >> would you support a finer rule that emphasizes the importance of a bank's physical presence in terms of branches in low and moderate income communities? >> i'm sorry. did you say de-emphasizes? >> i think we need to take a look at the way branches are playing a role in today's community but banking in general and digital framework for banks. in general i believe that branches are important. still important and in a number of low and moderate income communities to the extent that consumers rely on the branches more so than they rely on digital devices.
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i was certainly want to make sure that emphasis remains a part of this hearing. >> i think place is important with respect to banking and the implementation of the cra. i come from a part of the country that is fairly rural and the importance of branches in rural communities is -- is something that i have a special interest in. on the other hand, the financial system is evolving and branches have a different role than they've had in the past and so i do think we need to think creatively while not ignoring place with respect -- >> are you both familiar with research that home and small business lending increases in low and moderate income neighborhoods with the presence of bank branches and decreases when branches close? >> i think some of that research has been done by the fed, i am familiar with it. >> you are familiar with it?
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>> yes. >> are you familiar with it. >> i have heard. i can't tell you the paperwork that came from. >> i look forward to sending the paperwork. would you support a rule that limits analysis of lending and investment activities in individual census tracks and instead relies heavilien a single ratio to calculate qualifying lending and investments? that's to both of you. >> can i start first? >> please. >> what i -- my view of the regulatory process is that we benefit enormously from input. the comle troller of the currency has put out an anpr that will give us a lot more information than we currently have. we're going to work jointly together on the basis of that information to put out an npr. so i don't want to front run that process by committing now to something that i may find on
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the basis of information that comes in from a variety of sources ought to be more nuanced. >> well, how about you? >> i would want a final rule to ensure that the original congressional intent behind the cra is satisfied. >> i appreciate that. do you agree with the premise that the cra is about measuring bank's contribution and services to local communities? >> >> thank you. local communities in -- yes, that's a part of the cra's intent. it's supposed to serve the communities in which they operate and to the extent that the local communities are low and moderate income communities they're supposed to serve as those communities as well. to the extent they have a footprint that does not include necessarily in their local presence the low and moderate income communities but in their general footprint, there are such communities you're supposed to serve as those. >> regulators no longer look at activities and individual low and moderate income communities
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or do so in a limited capacity, instead rely on the totality of a bank's actions, how is it that they'll be able to monitor whether banks are meeting local credit needs which vary from community to community? that's why the question about -- that's been put out that is suggesting instead of looking at individual census tracks that a single ratio to calculate qualifying lending and investments basically looking at the totality of an action without looking at its desperate efforts effects on a community is at the heart of the cra. i would hope that after your review, that you would make sure that what's at the heart of the cra remains at the heart of the cra. >> thank you. >> senator toomey. >> thank you, mr. chairman. thank you to the witnesses. let me begin with miss mcwilliams. you observed the -- what i think has been a national
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embarrassment and a big economic opportunity cost when you referred to the decade or so during which we had fewer than a dozen de novo banks launched over an entire decade. that's just horrendous compared to what we used to do. i do want to xhepds commend you for the attention you are putting on facilitating the application process. as we all know a de novo bank is not a systemic risk to the united states, any particular state, or typically the neighborhood in which they are headquartered. the idea that the federal government has to burden folks who are attempting to launch such a venture and provide capital in their community is just -- i'm relieved to hear that it's a priority of yours and i thank you for that. mr. otting, i would like to direct this primarily to you, although it apply morse broadly, and i was pleased to see the september statement that you folks put out underscoring and
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confirming and clarifying the guidance is not the same thing as a rule making, that it is not binding. you know the history of our successful effort to get the gao to confirm the leverage lending rule really amounted to a guidance i should say really a amounted to a rule. so i'm pleased that our regulators have acknowledged that when you take the delegated authority that congress has given, you actually have to follow the apa and then the cra and abide by those measures. my question is, for mr. otting, what are you doing to make sure that this important idea makes its way to the examiner level? i have heard from banks that feel as though this somehow has not filtered down to the guys who are actually walking in the front door of the bank and doing examinations. >> thank you very much for the
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question. i will admit that i'm a little baffled by this guidance issue. you know, it's fairly clear to me what the word guidance means and we would hope that in the occ that people will take that to heart and understand that definition. the one area that i think over the years that's perhaps got us off the rails a little bit was on the leverage lending guidance. and so i think over, you know, the ten months that i've been here we have had a number of sessions with senior leaders, with deputy comptroller and staff we've produced internal communication on this timm. i am a little disappointed to hear that you heard feedback that people are not recognizing guidance as guidance and rules are rules but i would hope that, you know, the next time we get together that the feedback that you would receive would be completely the opposite. i think we've taken this issue on, you know, straightforward and have had a lot of both written and verbal communication within the agency, all the way to the point that no regulatory
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or supervisory action can be taken off of guidance. >> thank you. and i appreciate that and i encourage your continuing that. vice chairman quarles, i think it's almost a year now since you have been confirmed. you and i have had a number of conversations about the tailoring of the enhanced prudential standards. and i'm encouraged once again in your testimony, you point out the importance of that, the lenl masy of that, but i have to say, i'm frustrated because i just haven't seen the progress that i thought we would have seen by now. as you know i'm particularly concerned about the liquidity coverage ratio as it applies to banks that are just above the $250 billion threshold, but clearly not similar to the giant money center banks. so i thought we would have seen something a long time ago frankly, and i'm wondering if you can give us any assurance that there's something coming
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soon in the general category of tailoring, but also specifically with respect to the lcr? >> yes, senator, that is a perfectly fair comment. i have been surprised as well at the time that it has taken to move forward on that topic, but as i indicated in my testimony, we do view that as a priority and we will be addressing it promptly. >> any more color on the promptly? >> one of the -- one of the issues with respect to the timing, which i know one could take different views about, but we did want to wait until the legislative instructions with respect to tailoring were clear before we completed that task, and so we are viewing it as a
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whole and so it has been affected by that, but we are no longer -- we are working hard on that as part of the overall tailoring package and so it should proceed at the same i pace. >> thank you. >> thank you, mr. chairman, ranking member brown for holding this hearing and thank you for being here. appreciate your testimony. thank you for what you do. mr. quarles, one of the provisions i spent a lot of time on s-2155 was one related to international insurance capital standards. the provision intends to bring more transparency to international standards setting a process. could you give me an update on where the federal reserve is in terms of setting up an advisory committee on an international insurance? >> well, we are working to increase the transparency of that process and i don't think that we have an advisory
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committee stood up, but that is part of what we will be d that's part waf we will be working on -- what we will be working on and ensure we have full in put into -- >> can you give me any on when that advisory committee would be set up? >> i can today, senator, but i'll respond promptly to you. >> it is your believe the international standard organization such as international association of insurance supervisors are embracing more transparency in their new york stock exchanges? -- negotiations? >> i do think they are. the information that i have received both from the international standard setting bodies themselves as well as from our participants in them is that we are making progress. >> last year the treasury department recommended continued u.s. engagement on international forum to enable the promotion of industry competitiveness as regulatory issues are dashted and standards are crafted. does the federal reserve support
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those priorities as a part of team usa's coordinated engagement in international forums and that buyer participation do you feel progress is being made in advancing the united states' interest? >> yes, i do think so. both with respect to the insurance standards setting bodies and with respect to the international financial bodies themselves, it's very much in our national interest to try to ensure that our views are made known and they are being made known particularly with respect to insurance. >> thank you. i just want to say quickly for the record that i think s 2155 has taken a big step forward in term of transparency for international regulations. insurance regulars. there are some efforts in the house of representatives to go far beyond what was recently signed into law with s 2155. i believe those efforts are misguided and quite frankly counter productive to the good work this committee has done and i would like to say to my
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colleagues in the senate i hope we give the provision as chance to play out before folks try to amend that section of the law. with regards to section 401, you've already talked about implementation of that with banks with less than $100 billion in assets. for the other institutions, and you said you anticipated those would be out before the end of the year, i just want to clarify some stuff. 2155 directs the regulators toeksempt all bank holding companies with less than 250 billion from enhanced prudential standards. that issues like companies are changed by the stat to youer to language of 2155. my sque this. can you elaborate if the federal reserve views 2155 as directing
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you to eliminate all prudential standards for banks with less than 250 or require you to change tlesh holds? -- thresholds. >> it's clear we've been instructed for banks in that category 100 to 250 billion to tailor our regulations. >> yes. >> and i think that's a clear instruction and we're taking that seriously. >> in regards to tailoring, let's say you find a bank -- let's say you find any bank, by the way, that's got a pretty nonrisky profile, we'll call it, and you've changed the standards on them because you find that their portfolio is pretty reasonable and lacks risk and they change it. do you have the ability to bring them in regardless of the size? >> absolutely. the statute certainly does not change our ability to prudentially regulate. we'll continue to be focused on
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capital and liquidity for institutions in that size and complexity range. the instruction is to tailor but not to eliminate prudential regulations. >> is it fair to say that as you look to tailor regulations you'll base it on a risk profile and if that risk profile changes you'll change the regulations to meet that risk? >> absolutely. >> thank you. >> thank you, senator. senator shelby. >> thank you. governor, is capital and liquidity two of the most important if not all the most important things in the banking? >> they are the foundation, yes. >> they are the foundation of the whole thing, are they not? >> yes. >> how do you balance -- i'll throw this question out because it's what you do every day.
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how do you balance the risk in the banking community? do you do it by bank by bank, small bank versus big banks? what we call systemic risk to our banking system as to what will not, keep in mind how you do that? >> well, as you know, we have to have a regulatory system that allows us to look both at the capital and liquidity position of individual institutions for their individual safety. and then we look at factor that affect the stability of the financial system even apart from individual institution failure. >> i'll ask this of the whole panel. how will the agencies that you
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head up take cost benefit analysis into account when impleamenning regulations? and how important is that? >> i'm happy to start. >> go ahead. >> with the fact that i think that that is an extremely important factor in any regulatory process, looking at the cost of regulation versus the benefit of regulation doing that seriously and honestly is something as regulators are required to do by through and also very appropriate for us. >> i agree. cost benefit analysis is crucial for us to determine the outcome of the rulemaking and avoid unintended consequences that would at the end in some cases harm the very entities and consumers that we're trying to protect. >> yes, senator. we certainly pay attention to it, but in alc all candor somet
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it's difficult to come up with what's a cost and what's a benefit. it's back of the envelope, in many cases. it's in sincere good faith effort as to what are we really accomplishing here versus what it's going to cost. so it's a little more visceral than scientific. more art than science. >> we deploy a risk base system. and accordingly with that with technology being able to do more and more offsite related analysis of things as banks are able to provide us that data. we also spend a significant amount of our time doing outsourced with ceos and various executives of banks to gather data where they think there's an over abundance of both either inner agency or within a particular agency of giving us feedback, and i think we've been able to take a lot of those things and try to become more efficient as we're implementing our regulatory oversight and
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authority. >> is or will the methodology to do the analysis differ from the fed, fdic, comptroller or will it overlap, will it be similar? i'm sure there's not one standard. >> well, when we do a joint rulemaking, you know, we work together -- >> should you do a joint rulemaking dealing with cost benefit analysis? >> well, i think the cost benefit analysis that we undertake in connection with a joint rulemaking we would coordinate on that as well. >> we would look at each other's entities. for us it's state charter banks that are not members of the federal reserve system and what the impact of the rule would be on those banks. we would solicit comment on that. we would ask our commentators to
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configure what the aggregate cost would be on financial framework and then we would come up with something good hopefully all together. >> i think that's a creative and innovative thought process to do joint rulemaking on that issue, and in our weekly general calls we bring that up and have dialogue around that subject. >> my time is moving on here, but senator toomey got into the deno voluntary ba de novo applications. why is there fewer despace station novo applications and what's the implications for our economy. is this an ongoing analysis? >> i believe there's a connection there and frankly we lost hundreds of thousands of the banks in the last 10, 20, 30 years. in order for us to replenish the
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ranks of the special community banks we need to encourage de novo applications. they work well for their communities. usually they start with a small staff with several million in capital. usually a local banking community and it happens in places where there's not a lot of competition for banking service. they serve communities that are neglected or not at the forefront of larger banks of a business model. >> my time is up. thank you. senator donnelly. >> i want to thank all the witnesses. i'm proud to work closely with you and senators heitkamp and others to craft this legislation. this law provides much need regulatory relief to banks and credit unions vital to economic growth in our community particularly in rural areas where businesses lack access to brog. today i want to benefit on how
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this law benefits consumers in indiana. s 12155 was inspired by the equifax data breach which compromised the personal information of more than 145 million americans. including nearly 4 million hoosiers. 60% of hoosiers were impacted which is the highest percentage of any state according to data from the "wall street journal". americans deserve the ability to monitor and protect their files from criminals seeking to steal their oddities. i will highlight three new provision i helped author. one, as of ten days ago every american can now freeze and unfreeze their credit files and set year long fraud alerts all free of charge. two, starting next year active duty service members will receive free credit monitoring to make sure their credit files are kept safe while they keep us safe and three, veterans will no longer be penalized by medical payment delays at the department of veteran affairs and remove va
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related mistakes from their credit files. due to these three provision consumers and service members and vets can now better protect their credit files and safeguard their personal information against fraud and identity theft. the following questions will be for all four witnesses. though the ftc and cfpb are the agencies to us theed on provision i high liked the federal reserve, occ, fdic and ncua are relevant as the primary regulators of financial institutions that report to and rely on credit files as part of the consumer lending process. so first, how do you recommend consumers best take control of their financial information and protect themselves from fraud or identity theft? >> first of all i commend you on your efforts. i think this is an important part for consumers to be aware of and have availability. on the occ website we parallel some activities you describe.
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where consumers have an educational format where they can identify ways where they can reach their credit reports, what's available to them for free so they understand the rules and regulations. i do think it's important that consumers take advantage of some of the tools that are offered by financial institutions. recently i lost my credit card for a day and i was able to freeze my account and then i found my card and could reactivate it. years ago that account would be closed. issued me a new card. so i think some provisions we've recently put in under your leadership will make consumers more able to monitor risk and spot activities when there's activities associated with that. >> thank you. >> thank you. we at the federal reserve through the federal reserve banks we have an active financial education process to make consumers aware of their rights under the new legislation. and we also are doing research
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as to the effect of some of these changes going forward. >> we have a very robust consumer education program at the fdic, and money smart publication. we have consumer news letters. we provide newsletter on the credit freezes that are available. so i want to thank you for that. and in general we do extensive consumer outreach. >> thank you, senator, for your leadership on this very important area. we have a separate website, that cover these items. i want helps consumers understand what their identity is, how important their identity is, how to safeguard their identity, how to look at a statement from a financial institution, you know look for people that are charging incorrectly to their statements.
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who to notify, how to notify. it's the blocking and tackling things that you may just no implicitly. a lot of people don't really know. >> thank you, mr. chairman. >> senator kennedy. >> thank you, mr. chairman. can we agree that banks enjoy numerous advantages vis-a-vis nonbank kmetors as a result of government actions? >> yes, we can. >> for example, i could start a competitor to you tube tomorrow, but if i want to start a bank i have to get a charter, do i not? >> that's correct. >> that limits existing banks competition, can we agree on that? >> we can. >> okay.
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banks can lend nationwide, can they not? >> if they, depending on their charter and where they are legally chartered to operate, that's correct. >> right. but government has given them the privilege of lending nationwide, am i correct? so long as they comply with the necessary rules? >> depending on what charter they have, correct. >> okay. a nonbank like prosper or lending club, they have to get a license from every single state, don't they? >> yes, they do. >> what about transferring money? banks can transfer money across state lines, but nonbank competitors have to get state licenses, do they not? >> well, are you saying where a bank has locations in multiple states? yeah. yes, they can. and nonbanks usually will use a financial institution to accomplish that.
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>> how about federal deposit insurance. does that give a bank a competitive advantage over a nonbank competitor like a money market mutual fund? >> up to a certain level it does. at the maximum of the fdic levels it gives people confidence that the u.s. government stands behind those deposits. >> in 2008 and 2009 the american taxpayer bailed out some of our larger financial institutions under t.a.r.p. you of course remember that >> i do. >> do you think those financial institutions would have survived had the american taxpayer not stepped up to the plate and bailed them out? >> i can speculate on that because -- i think it was a very important thing in the eyes of americans that the banking industry was stable. >> course. >> and that there was capital there to ensure that those financial institutions would be available to support their needs. >> for example, under t.a.r.p.
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and federal loan guarantees, citigroup got $475 billion from american taxpayers. bank of america got $336 billion. in dollars and guarantees. without those guarantees and loans from the american taxpayer would they have made it? >> i did not do that analysis. i'm assuming, if you want me to offer a general opinion, i think it could have been questionable. >> okay. well, when a bank uses government provided market power to force social change, can we agree that that bank is effectively acting as a private regulator? >> could you repeat that question for me. when a bank -- >> yes. banks have competitive advantages as a result of government. >> that's correct. >> when they use that government
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provided market power to implement their version of appropriate social change, they are in effect acting as a private regulator, are they not? >> i don't know if i would say a private regulator, i think they are deploying the board's decision on markets that they wish to serve. >> okay. or not serve. >> or not serve. >> i'm going to be introducing a bill called the no red and blue banks act that's going to block the gsa from awarding contracts to banks that discriminate against lawful companies based solely on social policy considerations. i sure would like you to take a close look at it. in the 30 seconds i have left let me ask you this question. i just read an article where bank of america was fined $30 million for manipulating a benchmark for interest rate products. they did it over six years to
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enhance or to make money on their own derivative positions. they were find $35 million. their assets are $2.3 trillion. do you think that will stop them? >> a fine is one aspect to the regulatory oversight in addition to the a fine there are critical factors around consent orders and various policies that are required to be adapted by the financial institution. so i don't think a fine solely will dictate whether or not the bank will be involved in that activity going forward. flow if did you that you would have u.s. attorneys hanging all over your neck, wouldn't you >> probably. >> thank you, mr. chairman. >> senator warren. >> thank you, mr. chairman. so for decades banks refused to lend to low-income minority neighborhoods and in rural communities. and this prevented a lot of working families from getting a
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loan eater to buy a home or to start a small business. so in the 1970s congress passed the community reinvestment act or cra to the level playing field and to require the banks to quote meet the credit needs close quote of all the communities in which they operate. so, mr. otting your agency put out a proposal a few weeks ago to rewrite the cra rules. notably the fed and fdic did not join in that proposal even though usually all three agencies work together on cra. now that was a pretty sharp sign that there are problems with your proposal and as i dug into the details i saw some of these problems. so here's one example. today banks get credit under cra for all kinds of things, making mortgages, providing financial education and the amount of cra credit they receive depends on the impact of the actions they take. now mr. otting you suing guest
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new quote transformational approach that would count all these investments the same for cra purposes. so a dollar to help a family buy a home is the same as a dollar to print a financial education pamphlet, is that right >> that is incorrect. >> that's incorrect. so you don't stand behind the idea that you propose police department. >> i do stand behind the ideas i proposed, what we've offered in there is a concept. recall this is an anpr. it's a document to get feedback from people. >> you're backing off from what you put in document. >> i'm not backing off. this is a document we put out the receive feedback. we spent time with over 1100 people before that document was produced. we gathered that feedback from civil rights groups, community organizations. >> now you'll be rewriting it? >> just for clarification, anpr goes out. we gather questions. we expect to have somewhere
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between 5,000 and 10,000 feedback from that report to which then we'll work with other agencies. >> you're telling me you're not standing by what you wrote. the approach is designed -- i think i do understand. please, please, i think actually i do understand. >> good. then i'll be theep have dialogue with you on that. >> that's what we're doing right here. i'm asking some questions and i would like some answers. this approach is designed to allow banks to invest even less in underserved communities. >> i disagree with that statement. >> i'm sure do you. 41 years after the cra was passed to promote service in low-income neighborhoods and rural areas it was supposed to reduce red lining but a new report shows that in 2018 it is harder to get a mortgage in 48 large u.s. cities if you're black. adjusted for inflation, lending in rural communities is below 1996 levels.
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and yet 98% of banks passed cra exams today and you want to weaken those standards. >> we don't want to weaken those standards. that's an inaccurate statement. >> all i can do is read the words you printed. >> we should spend time with you and clarify it. >> we should. we need to revise the cra to make it stronger. >> we agree. >> you'll try to make it stronger. >> make the measurement system clearer with my colleagues. >> yeah. >> we'll identify what qualifies because it is subjective and not accurate today. >> i've laid out in my housing bill last week, concrete ways of doing that, of making the cra stronger. >> would enjoy speaking with you on that. >> i'm delighted to hear that. you know, but that's the point here. this really is about families who can't get access to credit as senator kennedy just pointed out, the banks get an enormous advantage thanks too the federal
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government on lending and one of the responsibilities in return for that is that they serve their communities. and when two other federal agencies cannot agree with you that the rules you're proposing do that, i think we have a serious problem. in the time i have left i just want to ask about one other thing and that's another roll back of financial rules. in app the federal and occ proposed loosening the enhanced supplemental leverage ray show, special capital requirement for the eight largest banks. the fdic did not join in the proposal but that was before you got there. i want to ask you about this chairman mcwilliams. i want to get your thoughts on it. two of your most recent predecessors as fdic chair opposed weakening the leverage ratio. the director said in a speech last month the proposal would reduce this important capital requirement at these eight
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federally insured banks by at least $121 billion which represents a roughly 20% decrease relative to today. do you agree? >> i appreciate his view on this proposal and as well as i appreciate the use of all of our board members. it's an open rulemaking. i wasn't privy to the process that took into consideration of the rulemaking and i would want to understand the logistics and the reasoning behind coming up with the proposal as it is. >> so this is an open question. i recognize i'm over time. but i just want to say, again, putting income taxpayers at risk again and weakening capital standards by $121 billion at a time when the banks are making record profits is insane. this is not what our banking regulators should be doing. thank you, mr. chairman. i apologize forgoing over.
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>> senator scott. >> thank to you the panel for joining us and sharing your expertise. i'm not opposed to regulation. i am opposed to regulation for regulation's sake, however. it was congressional intent in 2155 to move away from the $50 billion threshold not just for capital standards but for resolution planning, the lcr and stress test frequency. comptroller's work on the rule is a good motel to follow. i ask you all to act with a sense of urgency when it comes to exercising your discretion with an eye to a sensible regulatory approach and continued economic growth. i'll also add foreign banks after welcome presence in our country. 7% of south carolina's workforce are at foreign companies. that's about 130,000 workers working at 1,200 foreign firms. and who often banks those employers?
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foreign banks. michelin deep south with bnb a french bank for a french company. bmw is served by commerce a bank a german bank for a german company. the list goes on. we should encourage fdi here at home and not vilify it. please apply a tailor regulatory approach to these institutions when appropriate. on a different note, south carolina has suffered its third major storm in four years. the flood insurance take up rapist is too low in south carolina. out before 1.5 million households, only about 204,000 policies exist. according to a recent study, 60% of those in hurricane matthew's path did not have flood insurance. it was 80% for hurricane harvey. the same study found a private market could increase the take up rate in both low and high-risk areas, improving the
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resilience, rebuilding and recovery process. while there's nothing in federal law that prohibits consumers from choosing a private flood insurance market, a robust private market still does not exist. i'll ask mr. otting and miss mcwilliams, what's the timeline on issuing the final rule congress asked for back in 2012? and are you deviating from the narrow and unworkable 2016 proposed rule? >> would you like notice answer first? >> sure. >> first of all, i do support the private insurance market and you may or may not know we have communicated that to the banks that we regulate. i think your point that you made that unfortunately it is not a large enough market at this point to make it price competitive. we do support making the market larger by private insurance being able to enter the market. we also collectively had dialogue on this topic we would hope in early 2019 we can issue
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the rule that i think can bring resolution to this issue. i look forward to having joint discussions with the fdic's perspective on this as we move forward. >> likewise we're looking to move forward. i'm sorry about the devastation in your state. i know some bankers from the southern parts couldn't make it. we're looking to finalize a rule hopefully by as early as february of next year. and we have encouraged banks to use private flood insurance in substitution of federal wherever available. >> thank you. >> senator shotts. >> thank you for being here. i want to ask mr. otting a question first. it's following up on a conversation we had last time, i think that you were here, asked you about occ's rca guidance and
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i was concerned gaze the guidance limited the discriminatory process and i thought we had a meeting of the minds because you said we should never allow discrimination of any kind of lending activities to occur and if it does it should have an impact on their cra rating and you promised to relook at that. but now the occ is still not going to downgrade a bank's cra rating for discriminatory lending practices that fall outside of the bank's cra lending activities. i just want to register that i'm confused. i thought we had a meeting of the minds. i'm disappointed with what occ does. i believe that you had the discretion to do what you did. i also believe you had the discretion to not do what you did. i don't think the law required you to interpret your statutory man date so narrowly. i don't want to waste the rest of the five minutes on that but i want to follow up on the
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record and through my staff. second question is where are we with the 800,000 consumers who were ripped off by wells fargo by purchasing auto insurance that they didn't need? >> yes. first of all, thank you for the point on the 500-43. i do believe and i will follow up with your staff and yourself personally if you would like to have dialogue on that. i thought we did bring clarification to that point. on the issue of wells fargo bank, i would say that we continued to work with the management and the board. we're not comfortable where we are. in april we issued a consent order that spelled out all the actions we expected from the bank. we continue to monitor that. i have high confidence on over your 100 examiners that are on site at wells fargo. have confidence in their process to monitor. >> when can i expect to be made
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whole? when can i expect this to come to a resolution. i understand you're going through a process and rangling with their board of directors and working through your agency. if i'm one of those 800,000 people, i want to distill this into when i do get my money back. >> i don't that have particular date in front of me because each of these supervisory activities is broken down into timelines. it's accurately getting the data so you can determine the harm and the impact that needs be repaired. >> fair enough. let me just kind of raise this second question as it relates to wells fargo. we know this isn't an isolated scandal as it relates to wells fargo. they wrongly charged consumers for mortgage rate locks. they charged monthly fees to consumers for add on products they don't understand. they wrongly repossessed vehicles of hundreds of service
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members. they are being investigated for pushing customers into high fee investment products, ensuring accounts to increase fees and denied loan modification for 600 customers and foreclosed wrongly on 400 customers. the question i have is, isn't this organization just too big? i understand you analyze whether something is too big kind of in a strict statutory analysis but you analyze it in terms of your ability to supper vice it and if you look at the occ it's got, what, how many employees, 4,000. wells fargo has 200,000. they have 88 billion in refer new. here's the kicker. besides the systematic kind of growth model where you have a
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multi-trillion dollar bank who depends on these business units regardless of the business opportune, regardless of the size of the economy, the growth of the economy they have to grow they have to report growth up and then they can't supervise themselves. it's very clear they can't supervise themselves. also very clear we can't supervise them. then i asked the ceo about revoking their charter and they say no you shouldn't revoke our charter because we provide products and services to one out of three american households. how does that not them actually saying we're too big to be taken down? >> it is our viewpoint there are other large financial institutions that have proven to be able to be regulated teen serve their customers in a satisfactory manner. size doesn't necessarily dictate -- >> but in this instance it seems that third size is a problem. i get that there are other institutions that are not so egregious harming customers and creating systematic risk but this institution is beyond
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repair from the standpoint of the overall economy and from the standpoint how they systematically screw customers. so it does have something to do with size because at some point, you know -- excuse me chairman, with your indulgence. i understand there's kind of the analysis of whether something is a monopoly, vertical versus horizontal integration. i get all of that. what i'm asking if at some point an institution is so big that you can't manage it, that it can't manage itself, and also that it's political influence is so massive that we can't wrangle it to the grounds on behalf of the health of the economy or health of individual household economics. i want you to think about that not as a partisan talking point but the extent to which its size makes it almost impossible to supper vice. >> thank you very much. >> senator heitkamp.
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>> we have heard millimeter sixes not one partisan you can't go after money laundering because the institution is too big. if you attack them on money laundering it might further rat tell credit markets. so we hear this periodically. this is a problem. if you don't want action on not being too big to fail then the regulation has to have some impact. but we keep hearing story after story and there isn't adequate explanation at this point and so i think it's important that we follow up. but i want to first off thank you all for moving forward with the community bank provisions on some of the simplifying complex capital requirements rules under 201. i understand chairman crapo asked that question when i was at a different hearing and i want to thank you moving forward with those provisions. another provision that's important is section 205 which eliminates paper work for banks
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through an expanded short form call report. can anyone give me an expected timeline for rules regarding that section? >> we are expecting either late october or early november to be able to have the npr -- >> notice of proposed rule make the end of october. >> that's correct. >> end of october early november. >> okay. we'll watch for those. i want to turn to appraisals because that was a big provisions i think. a lot of people here heard me say over and over again how difficult it is to get appraisals in rural communities. this goes mismcwilliams. where are you at with setting out some guidelines or process for appraisal waivers for residential property? >> we're looking at something soon. we need to make this -- we need to comply with the law but
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secondly it's a huge issue for rural communities and frankly that sometimes it takes month to approve transactions for a rural bank because lack of appraisers is not optimal. >> we need to move forward and as people are looking at getting back into mortgage lending that's a huge component. on a related matter, it's my understanding that the state banking commissioner and the governor submited a request to the appraisal subcommittee to exercise discretion to initiate a temporary waiver regarding pre-existing regulatory authority. and, again, there is some dispute within my community in north dakota whether that appraisal waiver is needed. but one of the things i would say without looking at the merits of the request, i'm interested in knowing how these requests are reviewed and why so few waivers have been granted under the appraisal subcommittee's existing
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discretionary authority. can you give me, miss mcwilliams an explanation of why these waiver requests haven't been granted in the past, and how the fdic works with the appraisal subcommittee to ensure that fair transparent and timely process with input from everyone. and i think i will just tell you there's some concern that it was just unilaterally denied and with no explanation for why that denial was issued. >> i would certainly hope they weren't denied without an explanation. i can go back and make sure that wasn't the case. if that was the case i'll make a call. the way it works is through the appraisal committee. this request for waivers would be sent through and they have to satisfy a certain number of requirements in order for them to be approved. if the waiver request is too broad, and it's frank liver outside of the authorities of
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the fdic's subcommittee to grant it won't be granted. but we're working, it's my understanding we're working with the entities in your state to make sure we can proceed. >> miss mcwilliams, based on their experience i would ask you to go back and take a look at maybe broader than just this one request from north dakota but go back and take a look at the response and the lack of what they believe was transparency, and basically making short shrift arguments. you might want to take a broader look than north dakota. please get back to us and hopefully get back to the banking commissioner in north dakota. >> i'll do that promptly. >> thank you senator heitkamp. >> thank you, mr. chairman. thank all of you for your testimony. i had a question with respect to the lack of a real-time payment system in the united states. i wrote to the fed last month
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and appreciate the letter i got back from the chairman because you got lots of americans who are living paycheck to paycheck. who send their check in, they think it's cashed and they think they are getting credited for it only to find out they didn't when they get overdraft fees. we're talking as you know billions of dollars of overdraft fees for people who are, gern, just trying to pay their bills. and that also leads some people to believe the banking system, they go to payday lenders and others. a lot of other countries, on my list i got the uk, poland, mexico, south africa, denmark, others have gone to a real-time payment system. why are we not there yet and when are we going to get there? >> well, senator working on the faster payment system is a priority of the fed as you know for some time. we have worked with
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private-sector. you know, on that topic to catalyze efforts to develop both technology and the systems in order to move towards faster payment. >> if i could, again i got your letter. i appreciate getting the letter back. my reading of it was, it was a restatement of the problem, and, you know, we're working on it. as you said you've been working anthony for a while. it just seems to me in this era where you've got paypal and you got the technology that allows people to make payment from their kitchens if they are on certain systems, that we as a country should be able to have 24/7 real-time payment systems. so my real question is why are we not there yet? are there obstacles? you write in the letter that you don't have the authority to mandate it but you have a lot of authorities. so my question is why are we not
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using those authorities? my understanding is you may be coming out with something in this quarter. we're in it now. why are we not there yet? this is costing billions, billions of dollars of people mostly who are just living paycheck to paycheck and i just don't understand why the united states can't do what these other countries have done? >> it's a fair question, senator. but as you know, that's not something that we as the federal reserve can mandate, but we are using a lot of those powers that you described, our convening power, and our exeritreaing power and there's been a lot of progress towards that and i think that in the next short period you'll see some further concrete steps that have been catalyzed by federal reserve action in the private-sector that move us to a real-time payment system. i think that's an important goal for us. >> i would like to follow up.
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just the pace of this seems to be very sluggish and in the meantime a lot of people are paying a lot of unnecessary fees and a lot of people are collecting a lot of fees that they would not be able to collect absent the lack of real-time payment system. mr. otting i would to follow up with you on your sort of investigation with respect to some of the wells fargo practices, specifically i think it was july of last year that we discovered that about 800,000 people who took out car loans were charged for auto insurance they did not need. and nationally that pushed about 274,000 wells fargo customers into delinquency, resulted in 25,000 wrongful vehicle possessions, including sort of harrowing story of a marylander who went out the go to work one day and discovered his car was gone. thought it was stolen. called the police.
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it was the wells fargo police repossessing the car and had wrongfully sold him unnecessary insurance. now i know they sent you a report. my understanding is you, you rejected that report. can you bring us up to date on what's going on and when wells fargo consumers can expect to be made whole? >> thank you for the question. i can't give specific examples like that because i don't have that information in front of me. but there are a host of activities that wells fargo is framing up, the harm that was implied to consumers. there are timelines for them to be able to complete that process. you may have missed the earlier conversation where we talked a little bit about this but i would say that we continue to be n not comfortable where they are. we have hundreds of examiners on
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site following this. we have high expectations for wells fargo to complete that process in a timely manner. as you may recall in the april consent order we put in strong language that we expect compliance with those activities. >> i know you were unsatisfied with the plan that they submitted recently. is there any date where i can tell my consumers who have been wronged by these actions that they can expect to be made whole? >> we would be happy to follow up with the bank and then contact your office and be able to give them that date. >> i'm not talking about specific customers, but people throughout the country. >> the whole project. >> thank you. i appreciate that. >> thank you senator van hollen. that concludes the questioning. i would like to encourage each of you to quickly implement s 2155 and significantly tailor rigs for banks with between 100 billion and $250 billion in total consolidated assets.
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with a particular emphasis on tailoring the stress testing regime. in addition, an article in today's "wall street journal" highlights the efforts under way at the fed to revisit rules like the liquidity recovery ratio and advance approaches rules to align the nature of our regulations with the nature of the firms being regular late. i commend those efforts and encourage the fed to continue move to forward on those aggressively. finally, yesterday some of my colleagues and i urged the agencies responsible for implementing the voelker rule to continue the work they've already begun. the letter notes the absence of proposesed reforms in the covered funds provision. we encourage you to use your discretion to address the overly broad application of these prostroigs venture capital, other long term investments and loan creation. so with those suggestions, i will now give the final
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instructions to our senators as well as our witnesses. for senators wishing to submit questions for the record, those questions are due in one week on tuesday, october 9. we ask the witnesses to please respond to these questions promptly. once again i thank you all for not loin your efforts in implementing 2155 for being here today and this hearing is adjourned. the group women for trump will hold their america first summit on friday. speakers include president
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trump's 2020 senior campaign adviser katrina pearson and fox news greg jarrett. live coverage starting at 1:00 p.m. eastern. online at and free c-span radio app. c-span where history unfolds daily. in 1979 c-span was created as a public service by america's cable television companies. and today we continue to bring you unfiltered coverage of congress. the white house. the supreme court. and public policy events in washington, d.c. and around the country. c-span is brought to you by your cable or satellite provider. tonight iowa congressman will debate his democratic challenger. they are vying for iowa's first congressional seat the debate in cedar falls will be live at 8:00
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p.m. eastern. on saturday night another debate for u.s. house seat with republican representative and democratic challenger. live from boseman, montana. you're primary source for campaign 2018. white house national economic counsel director larry kudlow talked about the administration's economic and trade policy agenda. at the economic club of washington, d.c. he also gave a glimpse into the president's decision-making process and how he handles point disagreements among his team. this is just under an hour. >> can i have your attention, please. we're very pleased today to have as our special guest, larry kudlow. he's assistant to the president for economic policy and the director of the national economic council.


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